A rebate for a game was issued in 2018 to encourage sales. 37,000 games were sold....

A rebate for a game was issued in 2018 to encourage sales. 37,000 games were sold. Customers mail in their receipt to receive $1 rebate per game. Estimated that 60% of customers will send in the rebate which expires January 31, 2019. To date 8,000 customers have sent in the rebate and $16,000 has been refunded. The previous clerk debited miscellaneous selling expense and credited cash for the $16,000

Management would prefer to have this type of expense in rebate expense for analysis.

What is the adjusting entry? Do we have to find how much has not been refunded and how do we correct this mistake? Is it also possible to make one journal entry?

Solutions

Expert Solution

The journal entries should be
Accounts receivable	22200
Rebate claim liability		22200
(3700060% $ 1)
(when sales are made)

Rebate claim liability	16000
Cash		16000
(Cash given for rebates claimed)

Rebate claim liability	6200
Sales		6200
(rebates unclaimed at end of period)


Assuming the 1st entry had been made correctly,
1..So, the correcting journal entry will be
Rebate claim liability	16000
Miscellaneous selling expense		16000

The un-refunded/unclaimed rebates is added back to sales (which would have been netted in the first entry)
2.. Rebate claim liability(22200-16000)	6200
Sales		6200



Yes.
Correction can be done by the following single JE also
Rebate claim liability	22200
Miscellaneous selling expense		16000
Sales		6200



NOTE:
It is the amount refunded--need not be confused with 8000 customers---meaning
$ 16000/ $1 =16000 rebate coupons have been received from 8000 customers.

ekkarill92 answered 1 year ago

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